Travel services go from Web-only to brick-and-mortar

Published: Monday, Jan. 17 2005 12:00 a.m. MST

Virtual travel agents are virtual no more.

After years as online-only brands, Expedia and Travelocity.com will begin selling vacation activities the old-fashioned way. Both companies are opening kiosks and small retail shops in major tourist areas this month.

The companies said the change would help them reach customers who had not yet purchased travel services online and would strengthen the companies' bonds with hotels, where many of the kiosks will be located. The new locations will also help the companies get a much bigger slice of the lucrative vacation activities business, selling services like helicopter tours, luau outings and show tickets. The activities market has no dominant player, with most tourist destinations relying on regional companies to market local tours and services.

"We felt we could make a pretty good business here by bringing our credibility to a space where there is no brand," said Jamie McDonald, vice president of destination services at Expedia, a unit of IAC/InterActiveCorp. "At the same time, we felt we could help our customers while they're in a destination."

The kiosks underscore the latest trend among online travel agencies, which have been trying in recent years to evolve into travel retailers, rather than simply Web sites that quote published air and hotel rates and pass orders on to suppliers, according to Henry Harteveldt, an analyst with Forrester Research, a technology consultant.

The moves come as travel sites fight to maintain their profit margins. Airlines have cut the commissions they pay to travel agencies and now market their own sites more aggressively. Hotels are also directing customers to their own sites by reducing the number of discounted rates available to online agencies. Harteveldt estimated that kiosk sales generate profit margins of about 20 percent, compared with 10 percent to 18 percent profits for hotel sales online and 5 percent to 10 percent margins for rental cars.

"Kiosks are a core plank to their future foundation," Harteveldt said. "It makes them less reliant on selling airline tickets and individual products, and more about selling vacation packages, destination services, etc. These guys are all about becoming a new form of retailer, much like L.L. Bean."

But Expedia clearly hopes that the kiosks will attract new customers to the online business as well. The kiosks, which will begin carrying the "Expedia!Fun" brand this week, have been operating in about 55 hotel lobby areas for years, under various brand names, serving customers who walk in or call. At one Activity World kiosk that Expedia began managing last spring in the Aston Waikiki Beach Hotel in Hawaii, about 80 percent of the customers had not used Expedia for their vacation booking.

"So our hope is, if it's your first experience with the Expedia brand, maybe you come back to the site and we'll see some sort of boomerang effect," McDonald said.

Expedia's retail kiosk effort began in earnest last spring when it bought, for an undisclosed sum, Activity World, which sells luau outings, bike tours and other activities on behalf of vendors in Hawaii. The company has since invested in similar companies in other destinations, including Mexico and New York, and will probably expand to London, Paris and other "key destinations where consumers spend money on tourism activities," McDonald said.

McDonald added that the kiosks, which are typically staffed by two employees at hotel lobby desks or within small retail spaces, did not signal a large shift toward full-service storefront travel agencies, with all the attendant costs in labor, rent and office expenses. He said that Expedia!Fun customers who want help booking airfare or hotels would be advised to log on to Expedia.com.

"We still feel good about it as a small retail operation," McDonald said, adding that he expected the kiosks to be less profitable than Expedia's core online business.

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